Contractor License Practice Exam

What are indirect labor costs that include taxes and insurance commonly referred to as?

1. Labor burden

2. Employee benefits

3. Administrative costs

4. Operational expenses

The correct answer is: Labor burden

Indirect labor costs that encompass taxes and insurance are commonly referred to as labor burden. This term highlights the additional expenses that employers incur beyond just the wages paid to employees. Labor burden includes costs such as payroll taxes (Social Security, Medicare), unemployment insurance, worker's compensation, health insurance, retirement contributions, and other employee-related expenses. Understanding labor burden is crucial for contractors, as it helps in accurately estimating project costs and ensuring that bids cover all associated labor expenses. This consideration ensures that a contractor remains profitable while complying with labor regulations and providing necessary employment benefits. Other options like employee benefits refer specifically to the perks offered to employees and do not fully encompass all indirect labor costs. Administrative costs typically relate to expenses involved in general office management rather than specific labor-related expenses, while operational expenses cover a broader category of costs encompassing all aspects of running a business. Therefore, labor burden is the most comprehensive term that accurately describes the indirect costs involved.